Is That Gustav’s Mustache on the Ground?

With oil and gold down this morning, investor sentiment is continuing to turn positive. There is a potential for oil to eventually evaporate down to the mid-$90’s and gold to $600. Just saying.

Keep an eye on overall market sentiment via measures like the NYSE Bullish Percent:

This chart is showing that roughly 50% of the stocks on the NYSE are on PnF buy signals. The 70% level gets us into overbought territory, so it appears that there is still potential for additional upside before things get frothy. For the bears, their hope is a decline in bullish sentiment from here, back down to the 44% level, which is a reversal of the trend and shuts the mouths of the optimists.

One thing to consider is that most of the stocks in the NYSE are comprised of small and mid cap names. In fact, 31% are mid cap and 46% small cap stocks. That leaves us with 23% of the stocks on the NYSE classified as large cap. Could we be seeing a broader rally in the market than just Dow/large cap names? I believe so. It is transpiring before our very eyes. Add to all this a stronger dollar, and perhaps the calls for 1,500 on the S&P by year end might not be so far fetched.

The reason why I bring that up is that I’m continuing to see strength in the small and mid cap names, especially in sectors like: retail, drugs, healthcare, REITs, environmental services, and S&L’s. This may be where you want to continue to screen for new stock ideas as the market does its sector rotation thing.

As always, hedge your bets. This is still a market environment that has a lot of crosscurrents and volatility.

Both bulls and bears may get their own mustaches punched off before it’s all said and done.